Under IFRS 5, a non-current asset or disposal group is held for sale when it is available for immediate sale and the sale is highly probable within one year. From that date it is measured at the lower of its carrying amount and fair value less costs to sell, and depreciation stops. A discontinued operation is a separate major line of business or geographical area that has been sold or is held for sale; its results are shown as a single amount in profit or loss.
IFRS 5 does two different jobs that students often merge. It changes how an asset is measured and presented once it is held for sale, and it changes how a whole component's results are reported once it is a discontinued operation. An asset can be held for sale without being a discontinued operation, so the two tests are applied separately. This guide covers both, with a worked example.
The held-for-sale criteria
An asset or disposal group is classified as held for sale when its carrying amount will be recovered mainly through a sale rather than through continued use. Two conditions must both be met:
- it is available for immediate sale in its present condition, on terms that are usual for such sales; and
- the sale is highly probable.
IFRS 5 spells out what "highly probable" requires:
- management at the right level is committed to a plan to sell;
- an active program to find a buyer has started;
- the asset is being marketed at a reasonable price compared with its current fair value;
- the sale is expected to be completed within one year of classification; and
- it is unlikely the plan will be significantly changed or withdrawn.
An intention to sell is not enough. A board resolution with no marketing is not enough. A property listed at double its market value is not being marketed at a reasonable price, so it fails. An asset the company plans to abandon is not held for sale either, because it will not be recovered through a sale.
Measurement once classified
An asset held for sale is measured at the lower of its carrying amount and fair value less costs to sell. Any write-down is recognized as an impairment loss in profit or loss.
The rule that catches everyone: depreciation stops from the date of classification. The asset is no longer being used up in the business; it is waiting to be sold. Depreciation stays stopped even if the sale ends up taking longer than a year, as long as the delay is outside the company's control and it remains committed to selling.
IFRS 5 takes the lower of two figures. IAS 36's recoverable amount is the higher of two. The two standards pull in opposite directions, and importing the IAS 36 rule is a common error.
Worked example: a division held for sale
A company classifies a division as held for sale on September 1, 2026. At that date the division's assets have a carrying amount of $3,200,000. Their fair value is $3,050,000, and costs to sell are estimated at $80,000. Depreciation on the division's assets had been $240,000 a year.
| $ | |
|---|---|
| Fair value | 3,050,000 |
| Less: costs to sell | (80,000) |
| Fair value less costs to sell | 2,970,000 |
| Carrying amount | 3,200,000 |
| Impairment loss (lower of the two is $2,970,000) | 230,000 |
| Account | Debit | Credit |
|---|---|---|
| Impairment loss | 230,000 | |
| Assets held for sale | 230,000 |
Depreciation for 2026 covers January to August only: 8 months × $20,000 = $160,000, and nothing from September 1. Charging the full $240,000 is the wrong answer.
On the balance sheet
Assets held for sale are shown separately from other assets, and the liabilities of a disposal group separately from other liabilities. They are not offset against each other.
The comparative balance sheet is not restated for the new classification. That is a deliberate contrast with the income statement treatment below.
Discontinued operations: a separate test
A discontinued operation is a component of the company that has been disposed of or is held for sale, and:
- is a separate major line of business or geographical area of operations;
- is part of a single coordinated plan to dispose of such a line or area; or
- is a subsidiary bought exclusively with a view to resale.
The bar is high. Selling one machine, one shop or a small product line does not qualify. Those assets can be held for sale without any discontinued operation presentation.
Presenting a discontinued operation
A single amount is shown on the face of the statement of profit or loss: the after-tax profit or loss of the discontinued operation, plus the after-tax gain or loss on remeasuring it to fair value less costs to sell or on disposal. The breakdown into revenue, expenses and tax goes in the notes.
The comparative income statement is restated so that last year also shows the operation as discontinued. That is the opposite of the balance sheet treatment, and the reason is the purpose of the split: readers need to compare continuing operations on a like-for-like basis across both years.
US GAAP (ASC 360 and ASC 205-20) is similar. A disposal is reported as a discontinued operation if it represents a strategic shift with a major effect on the company's operations and results.
Common IFRS 5 mistakes
- Continuing to depreciate an asset held for sale. Depreciation stops at classification.
- Using the higher of carrying amount and fair value less costs to sell. IFRS 5 takes the lower.
- Restating the comparative balance sheet. Only the income statement comparatives are restated.
- Not restating the comparative income statement. The mirror-image error.
- Calling every held-for-sale asset a discontinued operation. It must be a separate major line of business or geographical area.
- Offsetting held-for-sale assets and liabilities. Both are shown separately, gross.
- Classifying an asset to be abandoned as held for sale. Abandonment is not a sale, although an abandoned major line can still be a discontinued operation once it is abandoned.
Practice it
IFRS 5 questions almost always test the two classifications separately, so treat them as two questions and answer both. Accountely's discontinued operations challenges mark the classification decision separately from the measurement, so it is clear whether you failed the criteria or the arithmetic. Because the write-down works alongside impairment, IAS 36 impairment of assets is worth reading too. It's free to start.
Frequently Asked Questions
When is an asset classified as held for sale under IFRS 5?
When it is available for immediate sale in its present condition and the sale is highly probable: management is committed to a plan, a buyer is being actively sought at a reasonable price, the sale is expected within one year, and the plan is unlikely to change.
Does depreciation stop when an asset is held for sale?
Yes. Under IFRS 5, a non-current asset classified as held for sale is not depreciated or amortized from the date of classification. It is measured at the lower of its carrying amount and fair value less costs to sell.
What is a discontinued operation?
A component of a company that has been sold or is held for sale and represents a separate major line of business or geographical area, is part of a single plan to dispose of one, or is a subsidiary bought only to resell it.
Are comparatives restated for a discontinued operation?
The comparative income statement is restated so that the discontinued operation is shown separately in both years. The comparative balance sheet is not restated.